The bulls are on a rampage on Dalal Street, with both benchmark indices hitting new lifetime highs repeatedly over the past couple of months.
Retail investors have more than one reason to rejoice as sceptics warn the party may end soon while optimists argue it’s hard to stop dancing when the music’s still playing.
Benchmarks Post Double-Digit Gains
The BSE Sensex has spiked 16% between January 2 to December 22, closing at 71,107. Similarly, the Nifty 50 has demonstrated an equally stellar run, rising 17% to settle at 18,197 during the same period.
As the markets continue their gravity-defying act, investors likely wonder — is this bull run sustainable, and if not, when will the music stop playing?
Should Investors Book Profits Amid the Rally?
According to experts, investors can consider booking profits if the ongoing rally has led to equity allocations far exceeding targeted thresholds.
For instance, suppose an investor “X” aimed to cap equity exposure under 60% in their portfolio. However, due to the heightened exuberance, equities now account for over 75% of the total portfolio.
In that case, experts recommend redeeming 15% of the portfolio to rebalance asset allocation.
“Investors can book profits if the asset allocation is skewed towards equity. By profit booking, one can do the rebalancing,” says Amol Joshi, Founder, Plan Rupee Investment Services.
Joshi further suggests making fresh investments in hybrid funds over the next six to eight months through systematic transfer plans (STPs) after booking profits.
Exercise Caution; Avoid Going Overboard
The adrenaline-pumping rally has led to astronomical gains, especially in highly risky small-cap names. However, experts warn investors about tempering expectations as the segment’s fortunes can change swiftly.
“Markets have done pretty well lately, and small caps tend to outperform the benchmarks during such times. Still, this trend may not sustain, so one should build some flexibility into their plans,” advises Sebi-registered investment advisor Deepesh Raghaw.
Raghaw further adds investors should review exposures and offload risky names in favor of defensive large-caps or debt funds to mitigate downside risks.
“It’s better to examine your portfolio and reduce allocation if skewed significantly towards risky assets,” he adds.
Stick to Asset Allocation Strategy; Avoid Emotional Decisions
Regardless of overwhelming optimism, generic personal finance advice of keeping one’s calm instead of getting swayed by market euphoria always comes in handy.
Founder of Madhuban Finvest, Deepak Gagrani, aptly explains, “As Indian equities surge, it’s vital for investors to focus on emotional resilience and stick to their asset allocation strategy.
Guard against FOMO, avoid significant commitments, and don’t panic exit based just on market fears. While maintaining equity exposure, consider rebalancing towards undervalued large caps for better valuation comfort.”
The message for investors is loud and clear — avoid knee-jerk reactions. Review exposures, rebalance if needed, but don’t abandon equities merely because of the dizzying rally.
What Led to the Current Bull Run?
The Indian equity markets have been on an absolute tear over the past three years. The benchmark Nifty 50 index has surged over 72% during this period, while the 30-share Sensex has gained 68%.
But what has powered this relentless bull run when global peers struggled? Let’s analyze the key driving factors.
Robust Domestic Fundamentals
Despite global turbulence, India’s domestic fundamentals have shown tremendous resilience. The nation is the world’s fastest-growing economy currently, expanding over 7% annually.
Healthy growth paired with moderate inflation and rising consumption across urban and rural India has attracted significant foreign inflows over the past 36 months.
Rich Valuations & Liquidity
Abundant global liquidity paired with attractive domestic fundamentals has led to rich valuations across sectors. The money has to go somewhere, and India seems like a reasonable bet for foreign investors.
Retail participation has also surged to record highs. Millions of new demat accounts added since 2020 has brought more liquidity into equities.
Recovering Corporate Earnings
Listed companies across most sectors have posted record profits since the pandemic lows. Corporate earnings growth is essential for sustaining expensive market valuations.
Barring sporadic hiccups, India Inc has ticked most boxes on profitability growth over recent years. This has provided significant tailwinds to the ongoing rally.
What Lies Ahead? Can the Bull Run Continue Further?
Well, the million-dollar question — can this epic bull run continue uninterrupted over the coming years as well? Let’s attempt decoding what potentially lies ahead.
Possibility of Short-Term Correction
The markets have seen a relatively smooth run-up without any major panic selloffs over the past three years. Historically, that doesn’t align with typical bull market cycles.
Hence, a short-term correction or volatility burst cannot be ruled out, even if the long-term remains constructive.
Depends on Global Factors
Global central banks, especially the Fed, hold the key triggers for sustaining optimistic domestic sentiment. If the US or EU slips into a sharp slowdown or recession, emerging markets like India may not remain insulated.
However, if the developed world avoids a deep crisis, India could build upon current momentum. But some amount of imported volatility is unavoidable as external linkages expand.
Earnings Growth Must Catch-Up
Corporate earnings have shown sporadic resilience so far but need to exhibit consistency over several quarters to justify record valuations across market segments.
Any major disappointment on the profitability front could act as a speed breaker. But if India Inc manages earnings visibility, markets may continue their forward march.
So in summary — yes, there are risks as global liquidity tightens and valuations seem stretched. But India’s structural appeal remains on track.
Smart investors must avoid irrational exuberance and make reasonable asset allocation adjustments rather than panicking. The India growth story seems set for multi-year gains, albeit with occasional bumps. Stay invested, but stay vigilant.